Fiscal turmoil, uneven growth

UN Predictions

By Shivaji Sarkar

The global economy is stagnating and income inequality is increasing concerns over growth, as India enters a vibrant political phase and pines for economic direction. The phase is critical. World stagnation, as the UN has predicted in 2019 and 2020 in its World Economic Situation and Prospects (WESP) 2019, has ramifications for India. Its efforts for economic recovery would be affected impacting its future budgetary provisions.
Will its political wisdom be able to address this? Would Opposition Congress trying to fight on the “front foot” with Priyanka Gandhi being formally launched as AICC General Secretary and Rahul Gandhi as a sober campaigner, be able to make a difference? Another crucial question is whether the Congress has a vision beyond Manmohanomics?
Remember, the Manmohanomics of 1991 did one good thing. It ushered in partly in practice more in theory an era of liberalisation. The path has since been followed willy-nilly by all successive governments, irrespective of the political colour. All finance ministers after Manmohan Singh, did so. That was good given there was a predictability of the course. But with years the supposed liberalisation, talked in 1991, got lost somewhere. It has lead to a firmer grip by the bureaucracy or the government itself on the course and lives of the people and their businesses.
This has led to a certain level of GDP growth but the social distribution of wealth has been convoluted, leading to severe concentration of wealth, in one per cent people and the growth of wealth of the multitude in most cases either getting minimal or reduced, as per OXFAM. The worst has happened to the daily wage labourers, with their earnings coming down.
The WESP has noted the trend continuing in different regions. Though it predicts a three per cent annual growth till 2020 globally, it sees deceleration to two per cent in the European Union and the US, “as the impulse from fiscal stimulus in 2018 wanes. The Brexit or not has shaken the European economy”. China too is slowing down to 6.6 per cent. Several parts of Africa, Western Asia, Latin America and the Caribbean are likely to see incomes stagnating.
Without mentioning India, WESP states: “Even where per capita growth is strong, economic activity is often driven by core industrial and urban regions, leaving peripheral and rural areas behind”. This is happening in Indian farms and rural areas. And, the political fall-out marked the recent Assembly elections. The global slowdown has had an impact on Indian exports and can cause domestic discontent.
Peculiar to Indian scenario, the WESP says, there “is a confluence of risks with the potential to severely disrupt economic activity and inflict significant damage on longer-term development prospects. The risks include waning support for multilateral approaches; the escalation of trade disputes; financial instabilities linked to elevated levels of debts; and rising climate risks, as the world experiences an increasing number of extreme weather events”.
The prediction is pessimistic and India is suffering many of these. Growth is not being reflected in people’s happiness. This is the greatest challenge to the political contenders for the 2019 elections. So far, no political party has shown that it has a grasp on the situation. Instead, all of the parties are in a wilderness failing to understand the crisis.
The Indian voters need an answer. The Opposition is very vocal that the ruling BJP does not understand the phenomenon. True or not, do any of them understand? The recent Assembly polls brought to the fore not only the crisis but also that if a Telangana government brought a half-baked solution for increasing farmers’ income by paying them Rs 4000 (now Rs 5000) per acre of their holding, all others consider this as only an instant vote-catching mechanism.
The announcement of Priyanka Gandhi leading eastern UP, once a Congress citadel has warmed up politics. One would have liked to see if there was a firm economic pattern also. No regional or national party has shown that vision, concept or wisdom.
Sadly, the parties are suffering from myopia. They have lost sight of the fundamental problems. Competitive rhetoric is raising doubts. People are in a quandary. They do not find a solution to joblessness, underemployment and falling incomes and a continuous rising inflation. The governments have lost the will and control to correct the situation.
So the UN Chief Economist and Assistant Secretary-General Elliott Harris states: “Alongside various short-term risks, there is an increasing urgency to deal with much more fundamental problems”. He does not find sustainable development goals being achieved or poverty elevated till 2030. So do neither the political parties in this country. They are busy in caste politics, religious divide and raking up parochial issues. All lead to ignoring the 2030 SDG. Worse, India does not seem to have yet found the path.
A country that was once led by its own economic wisdom of Chanakya, that followed Gandhian principles, Marx, Engels, socialism or Keynes, and now the market economy or Deen Dayal Updhyay’s integra humanism, today finds all of these have failed and now it does not have a model to follow.
The governments are only tightening financial conditions through the banks and other instruments of taxation or interest rates. The UN says this can lead to financial turmoil. The WESP says “as global financial conditions tighten an unexpectedly rapid rise in interest rates or a significant strengthening of the US dollar could exacerbate emerging market fragilities, leading to heightened risk of debt distress. This risk can be further aggravated by global trade tensions, monetary policy adjustment in developed economies, commodity price shocks, or domestic political or economic disruptions.”
That exactly is happening here. Large external financing needs and limited policy buffers are particularly vulnerable to financial stress. Often it is said that the country should spend more on research, which it is doing. Its research investment in theoretical non-productive research has grown phenomenally. Universities are producing more doctorates. But fundamental thinking is eluding.
This leads to uneven economic growth. The fears of incomes stagnating further would be real. It says double digit growth is required. That is also not a solution. Growth and amelioration of conditions are not synonymous.
So the government may continue or change for the present, ground realities may be disturbing and solutions half baked. Income inequality, as feared by the UN, is likely to aggravate. For a solution there has to be dialogue and the political leadership has to be sagacious. A tall order! — INFA